Fresh prepared foods and produce specialist Geest plc (Geest) has provided the City with an update for the year ended January 1, 2005, prior to entering its close period and ahead of its preliminary results announcement on March 17, 2005.
The Geest Board expect the year-end results to be in line with expectations despite difficult trading conditions as reflected recently in statements by retailers.
Group sales are expected to show like-for-like growth of five per cent. Reported group sales are likely to show a decline of two per cent due to the change in accounting treatment of most of Geest’s produce sales from the mid-year.
Sales for the UK fresh prepared foods business will have grown by around four per cent (like-for-like), although Geest saw a lower than expected rate of sales growth in the second half “owing to worsening general retail conditions in the Autumn”.
Sales of fresh prepared foods in continental Europe are expected to have grown by around five per cent, despite sales price pressure in all market sectors.
A statement said: “We expect produce sales to have grown by about 12 per cent (on the basis of a consistent accounting treatment), reflecting growth from the creation of International Produce Limited in July 2004.”
Trading conditions throughout 2004 were difficult as competition between retailers focused on price to an unprecedented level and pressure on suppliers’ margins remained intense. The statement added: “Management’s response was to secure a number of efficiency improvements. In 2004, these will have generated savings of at least £22 million, although, as expected, they have been offset by selling price reductions and input cost inflation.
“Overall, therefore, we have been successful in our plan to broadly hold margins in our UK fresh prepared foods business. In addition to these savings, as previously announced, actions have been taken to streamline our overhead structure with a managerial job reduction of over 10 per cent going into 2005.”
In September 2004, Geest acquired Anglia Crown and it is pleased with performance to date. This acquisition was one of a number of initiatives aimed at creating new revenue channels for Geest from fresh prepared foods.
Geest generated a strong free cash flow, part of which was used to buy back over three per cent of shares (held in treasury), a process which has been halted during offer discussions. As announced on December 21, 2004, Bakkavor, the potential offeror, is currently engaged in due diligence.
The Geest statement said: “Looking forward, although we expect high levels of retail price competition to continue, there is clear, continuing growth in consumer demand for fresh prepared foods. The level of market growth for UK fresh prepared foods remains well ahead of the food manufacturing sector and is growing currently at around six per cent.”
Geest has won new business with existing UK retail customers which will benefit sales levels through the first half of 2005. These sales will have an estimated annualised value of £30m.
“We remain confident of the opportunity for further growth for Geest, supported by its leading market positions, its new and developing revenue streams, and well-invested and modern production base. Our efficiency programmes remain on track and are planned to generate further improvements in, and beyond, 2005,” said the Board.
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